By now, the high level of securitization had been demonstrated by the largest issuers Ц these are Moscow (66%), St. Petersburg (100%), Komi Republic (65%), Chuvash Republic (58%), Krasnodar Territory (57%), Irkutsk Region (52%). At the same time, because of considerable transaction costs, concerned with organization of bondsТ issuing, issuance of small loans proved to be too cost based, and the municipalities continued to borrow Section 2.

Monetary and budgetary spheres from commercial banks. Still, for the largest cities, issuance of papers became more and more attractive, which led, in 2004, to increasing the volume of placed municipal bonds more than 1,5 times in real terms (Table 21).

Stabilization of the financial market caused an increase in number of regions and cit ies, that entered the capital market on a regular basis. Since 1999, annual bond issuance had been made by Moscow, St. Petersburg, Chuvash Republic, Volgograd Region; since 2000, Ц Tomsk Region and Komi Republic, Ekaterinburg; since 2001, Ц by Leningrad and Irkutsk regions (Table 22).

Creditability of territorial governments Credit rating In recent years the high economic growth rates in Russia led to raising of the sover eign credit rating and rating of territorial government agencies.

In so doing, the process of raising the credit rating of the territorial governments to the investment level observed. In November 2004, the first of the Russian regions Ц the city of Moscow Ц was awarded by the credit rating agency Fitch a credit rating of the invest ment level "BBBЦУ on borrowings in foreign currency. Then, the agency MoodyТs granted a credit rating of the investment level УBaa3Ф to Moscow and St. Petersburg. At the begin ning of February 2005, the agency Standard&Poor's also raised the credit rating of Mos cow to the investment level У¬¬¬ЦУ (Table 23).

Problems of outstanding debt restructuring Despite raising the credit ratings of a number of the FederationТs subjects, up until now the issues of outstanding debt restructuring have not been solved. According to the data of the Ministry of Finance of Russia, the volume of outstanding debt increased since November 2003 to October 2004 by more than Rb 8.7 bln., in nominal terms Ц from Rb 20.3 to Rb 29.0 bln., which constituted 1,02% of the revenue side of regional consolidated budget or 0,17% of GDP.

The outstanding bonded debt is most considerable in the following regions: Chu kotka AD Rb 6.1 bn or 31,9% of the revenue side of the budget, Oryol Region Ц Rb 2.8 bln.

or 28,1% of the revenue side of the budget, Orenburg Region Ц Rb 2.5 bln. or 9,3% of the revenue side of the budget, in Republic of Tuva Ц Rb 0.7 bln. or 8,1% of the revenue side of the budget (Table 24).

**The outstanding debt, as of October 1, 2004, to the regional (non consolidated) budget revenues ratio.

Source: IETТ calculations based on the data of the Ministry of Finance of the RF.

2.4.3. Stock Market In 2004, Russian stock market demonstrated more moderate growth rates than in the prior years (Fig. 20), with stock indices sometimes falling down quite drastically. The rea son for such downfalls were growing political risks associated with the attack against YUKOS. Backtax claims for 2001Ц2003, arrests of the companyТs bank accounts and as sets, accusation and detainment of a number of its senior managers and ultimately the sale of its main oil producing assets, Yuganskneftegas, Ц all that triggered sales along the whole range of Russian blue chips and resulted in the fall of the stock indices. The Уcrisis of confidenceФ burst out in the banking sector in June through July 2004 also battered the dynamics of the national financial markets and particularly the stock market.

Given the above, however, a favorable macroeconomic situation against the back ground of extremely high world prices for oil and oil products saved the stock market from a drastic fall and sometimes contributed to a notable rise in quotations. In addition, the dy namics of the market were encouraged by the September 2004 auction on the sale of a part of the government stake in LUKOIL, as well as the granting to Russia of investment rat ing by Fitch.

RUSSIAN ECONOMY in trends and outlooks 90 800.Volume of trading (USD) 80 750.RTS index 70 700.60 650.50 600.40 550.30 500.20 450.10 400.350.Source: the RTS Exchange Fig. 20. The Dynamics of the RTS Stock Index and Volume of Trading in In 2004, the Russian RTS stock index grew by 46.7 points, from 567.4 up to 614.points, or by 8.23%. These results appears fairly moderate vs. those of 2003, when the RTS index grew by 206.46 points (+57.22%) in absolute terms. As to investorsТ activity, it proved to be lower in 2004 vs. 2003. More specifically, the 2004 turnover on the classical stock market in RTS roughly accounted for USD 5.7 bln., which is a. 7% down vs. 2003 (6.bln.). Plus, 2004 saw 48.84 Thos. deals stricken vis а vis 56.269 Thos. reported in 2003, which also evidences a lower activity than in 2003. The average daily turnover of trading sessions on the stock included in the computation of the RTS index in the trading system in 2004 made up USD 21.15 mln., thus a. 11.9% down vs. 2003 (USD 24.0 mln.).

The dynamics of the market were different over the year. Between January through April the market was dominated by the upward trend and the RTS index climbed up by 195.47 points Ц from 586.08 up to 781.55 (+33.35%). Hence, the new historic maximum registered on April 12, 2004. The rise in the RTS index was accompanied by a notable growth in the volume of trades. Given that between January to February the monthly vol ume of trades with the stock used to compute the RTS index roughly accounted for USD 430 mln., in March and April it grew up to USD 617 and 830 mln., respectively. At this junc ture it should be noted that it was in April 2004 when the record breaking volume of daily trades was registered: namely, on 22 April, the respective amount was USD 71.67 mln. The main reason for the positive dynamics of the stock market was an extremely high level of liquidity in the banking sector, which was growing steadily over the 1st quarter. That helped investors accumulate free capital and, at least, in part fueled their demand for stock. The market was further encouraged by presidential elections outcome, when having perceived Mr. PutinТs victory as an evidence of a future political and economic stability, non residents began to show a greater interest in the national stock market.